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E-MailHester M. Peirce is a Commissioner at the U.S. Securities and Exchange Commission. This post is based on her recent statements at an Open Meeting of the SEC, available here. The views expressed in this post are those of Ms. Peirce and do not necessarily reflect those of the Securities and Exchange Commission or its staff
Thank you to the Chairman, the staffs in the Divisions of Corporation Finance and Economic and Risk Analysis and the Office of General Counsel, and other staff throughout the building for your diligence on this proposal. This rule certainly has extracted lots of resources from this building.
Section 1504 of the Dodd-Frank Act and the tortured more-than-seven-year rulemaking history that it spawned serve as a reminder of the perils of permitting civil society—as this proposing release so eloquently dubs the groups that championed this rulemaking—to use the federal securities laws as an appropriate vehicle for accomplishing their own, non-securities purposes. As noble as these purposes are, the securities laws are not an appropriate Christmas tree on which to hang them.
Speaking of Christmas, ‘tis the Season, so I am going once again to trot out Charles Dickens’ tale of Ebenezer Scrooge, whose contempt for the holiday season and the people around him leads to terrifying, but edifying encounters with three ghosts. [1] The Resource Extraction rulemaking comes with its own set of ghosts. Though the lessons we have to learn are different, I hope we will be as teachable as Mr. Scrooge was.
The ghost of Resource Extraction Past has a long run in this telling of the story. In 2012, the Commission made its first effort to adopt these rules, only to have the U.S. District Court for the District of Columbia vacate the rule in 2013. [2] The court held that the Commission misread Section 13(q) of the Securities Exchange Act of 1934 to compel the public disclosure of annual reports. In fact, the statutory text is silent with respect to whether these reports should be public, and the statute’s directive to produce a compilation grants the Commission discretion in determining which information should be compiled and made available to the public.
Although we are proposing to make the reports available publicly, the proposing release posits an alternative approach. We are considering permitting issuers to submit their annual reports to the Commission non-publicly. The Commission then would use those submissions to produce an aggregated, anonymized public compilation. This approach would address concerns about competitive harm and potentially physical harm to issuers’ employees associated with public disclosure of sensitive, issuer-specific information. I urge interested parties to weigh in on this alternative approach.
Fast-forwarding a few years, Congress disapproved the Commission’s 2016 adoption of resource extraction rules, which replaced the rules tossed out by the court. This time, it was Congress that objected and threw out our replacement rulemaking under the Congressional Review Act (CRA). Our burden under the CRA is to write a new rule that is not substantially in the same form as the 2016 rulemaking.
Shaped by the CRA, the ghost of Resource Extraction Present offers a markedly better rule than its predecessors. As the staff noted, the proposing release makes a number of significant changes from the 2016 rulemaking, including:
- adding an exemption for smaller reporting companies and emerging growth companies,
- revising the definition of the term “project” to require disclosure at the national and major subnational political jurisdiction, as opposed to the contract level,
- raising the “not de minimis” standard,
- adding two new conditional exemptions for situations in which a foreign law or a pre-existing contract prohibits the required disclosure, and
- as I already mentioned, setting out a potential alternative approach that limits public disclosure to aggregated, anonymized information.
Finally, let’s imagine a brief visit from the ghost of Resource Extraction Future, and consider what the future may hold if the SEC rulemaking process becomes the vehicle of choice for achieving laudable objectives that are outside the SEC’s normal remit. Under this dystopian future, Regulation S-K would be littered with requirements to disclose information that is untethered from the concept of materiality. Such a future would hamper our ability to serve investors, dampen issuers’ interest in raising money in our public markets, and erode our position as home to the most vibrant and liquid capital markets in the world.
Just as Scrooge’s ghosts scared him into a proper respect for those around him, the ghosts of Resource Extraction Past, Present, and Future can help to remind all of us of the importance of the SEC’s core mission and the benefits that come from pursuing it without distraction.
I support the recommendation, thank the staff again for their efforts on this rulemaking, and look forward to commenters’ input.
Endnotes
1See Dickens, Charles, A Christmas Carol (1843).(go back)
2See API v. SEC, 953 F. Supp. 2d 5 (D.D.C. July 2, 2013). (go back)
